How to Use Credit Cards Responsibly

September 24
8:43 AM 2019

About 40% of U.S. households carry some credit card debt. The average American household debt how stands at $5,700. 

While credit cards do have a purpose and offer benefits, many adults abuse them and wind up getting stuck in a vicious cycle of never-ending debt.

It's important to use credit cards responsibly. Here's how:

Don't Fall into the Minimum Payment Trap

Credit card companies require borrowers to pay a minimum payment each month - typically 2%-5% of the balance. 

Minimum payments are very low, so it's easy for borrowers to fall into the trap of just paying the bare minimum and remain in good standing with the credit card company. Eventually, the balance will be paid off, but it will take significantly longer and you'll pay a lot more interest in the meantime.

If you can only afford the minimum payment, then stick to the minimum payment. But try to pay off as much as you can whenever you can. In fact, pay off the entire balance when you can. 

The quicker you can get rid of your credit card debt, the better. 

Only Buy Things That You Can Afford

Never use your credit card to buy something you can't afford. Ideally, you would only use your card in an emergency situation, and you'd be able to pay off your balance completely before your next bill.

Unfortunately, things don't always work out this way. But it's important to make sure that you're not using your credit card to pay for impulse purchases that don't fit into your budget.

Be Cautious About Making Large Purchases

What about large purchases? Many people make large purchases with a credit card, but it's important to weigh your options before you go this route.

A credit card is a form of financing because you can pay off your balance over time. However, unless you have a credit card with 0% APR, you're probably going to be paying a lot more than you bargained for.

When making large purchases, consider whether you might qualify for a 0% APR card. Just make sure that you'll be able to pay off the purchase before the interest rate skyrockets.

Consider whether a personal loan may be a more affordable option, or whether you might be better off saving the money ahead of time and paying in cash.

Choose Low-Fee, Low-Interest Cards

Choose a card with a low fee and low interest. The cardholder agreement should provide information on all of the fees and finance charges. 

"An annual fee is a set yearly cost that you pay for the privilege of having a card with the company," says Scott Langdon from Money Task Force. "Some cards may offer the benefit of no annual fee."

If you're not sure of the fees, you can call the credit card company to find out.

Always Pay on Time

No matter what, always make sure that you pay your credit card payments on time. Paying on time is one of the best ways to build good credit. It shows lenders that you're responsible and reliable. It also means that you can avoid late fees.

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